The Peter Schiff Show Podcast

Economic Ignorance

I happened to watch a YouTube video Politicon 2017 Live Stream Schapiro vs Uygur and I want to address only the part of the discussion which was about taxes.  Ben Shapiro did a good job, but a much stronger case should be made about Uygur's statements which were economically ignorant.

False Logic

One of the points that Cenk Uygur made during the debate is that high taxes are good, that we have more prosperity with higher taxes, and lower taxes are bad for the economy. In his opinion, if the government takes money from the people who earn it and gives it to the people who don't earn it, everybody is going to be better off, including the people who are being taxed.  He cited the 1950's as an example of U.S. economic prosperity, concluding that because income tax rates were 91% America was wealthy. This false logic.  it is like eating a banana during a rainstorm and concluding that eating bananas causes rainfall.

The '50's and '60's Marked the End of American Prosperity

In fact the reason we were prosperous in the 1950's and 1960's is not because of high taxes during those decades, but how low they were taxed in the decades before that. Ben Shapiro's response to Uygur was that we won WWII and the rest of the world was decimated, which is true, but not an accurate response.  The 1950's didn't just occur spontaneously.

Tax Rate Was Zero

We were wealthy and a mighty power before WWII.  The standard of living in the '50's and '60s was a product of the 19th century, and the early 20th century when we had no taxes at all.  The reason we created such a strong middle class was because we had no taxes. After the end of the civil war, from 1870 - 1913, which was the introduction of the income tax, the income tax rate was zero. That's the time of the industrial revolution. That's when all the immigrants were coming to America - the 1880's the 1890's, the 1900's.  That's when all 4 of my grandparents came here. There were no taxes and massive economic growth when the tax rate was zero.

Camel's Nose Under the Tent

When they started the income tax in 1913, the top bracket was 7%. That's still very low,  Initially they wanted to cap it at 10% and the reason they didn't is the objection was that the cap would encourage lawmakers to raise it to 10%. Unfortunately, they didn't cap it, and of course this was the camel's nose under the tent and the minute you had an income tax, congress couldn't resist the temptation to raise it.

 

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Economic Ignorance

I happened to watch a YouTube video Politicon 2017 Live Stream Schapiro vs Uygur and I want to address only the part of the discussion which was about taxes.  Ben Shapiro did a good job, but a much stronger case should be made about Uygur's statements which were economically ignorant.

False Logic

One of the points that Cenk Uygur made during the debate is that high taxes are good, that we have more prosperity with higher taxes, and lower taxes are bad for the economy. In his opinion, if the government takes money from the people who earn it and gives it to the people who don't earn it, everybody is going to be better off, including the people who are being taxed.  He cited the 1950's as an example of U.S. economic prosperity, concluding that because income tax rates were 91% America was wealthy. This false logic.  it is like eating a banana during a rainstorm and concluding that eating bananas causes rainfall.

The '50's and '60's Marked the End of American Prosperity

In fact the reason we were prosperous in the 1950's and 1960's is not because of high taxes during those decades, but how low they were taxed in the decades before that. Ben Shapiro's response to Uygur was that we won WWII and the rest of the world was decimated, which is true, but not an accurate response.  The 1950's didn't just occur spontaneously.

Tax Rate Was Zero

We were wealthy and a mighty power before WWII.  The standard of living in the '50's and '60s was a product of the 19th century, and the early 20th century when we had no taxes at all.  The reason we created such a strong middle class was because we had no taxes. After the end of the civil war, from 1870 - 1913, which was the introduction of the income tax, the income tax rate was zero. That's the time of the industrial revolution. That's when all the immigrants were coming to America - the 1880's the 1890's, the 1900's.  That's when all 4 of my grandparents came here. There were no taxes and massive economic growth when the tax rate was zero.

Camel's Nose Under the Tent

When they started the income tax in 1913, the top bracket was 7%. That's still very low,  Initially they wanted to cap it at 10% and the reason they didn't is the objection was that the cap would encourage lawmakers to raise it to 10%. Unfortunately, they didn't cap it, and of course this was the camel's nose under the tent and the minute you had an income tax, congress couldn't resist the temptation to raise it.

 

Press Wants Freedom of Speech as Long as It Fits Their Agenda

One of the few rights left to us in this country is the freedom of speech.  If we don't defend speech that we find offensive, someone else will find your speech offensive and move to silence you.  Political correctness, is evolving into the Thought Police via the mainstream media. In particular, President Trump's reaction to the events in Charlottesville is being portrayed as a defense of White Nationalists over Black Lives Matter. Nothing is President Trump's remarks supports this story.  President Trump, in the lobby of Trump Tower, was subjected to an inquisition by the Press, who intended to entrap the President and further their agenda to mischaracterize him and anyone who supports him.

Disrespecting Donald Trump and the Office of the President

I know very few members of the Press respect Donald Trump; this is clear.  But they need to respect the office of the Presidency.  Could you imagine members of the Press treating President Obama the way they are treating President Trump? Can you imagine the cries of racism? Of course, no member of the Press would dare show that type of disrespect to President Obama.

Condemning Violence on Both Sides

President Trump is refusing to denounce only the violence perpetrated  by the White Nationalists without also mentioning that the Black Lives Matter group, who assembled without a permit, also engaged in violence.  The Left is saying that President Trump has not denounced the White Nationalists enough. What the President said was that he was condemning the violence on both sides and that angered the left. They hold that the President should only condemn violence committed by the White Nationalists. That would be hypocritical.

Background on the Event

To give you a little background, the park, formerly named Robert E. Lee Park, was re-named Emancipation Park and the city was going to tear down the statue of Robert E. Lee that had presided over that park. So there was a local protest that the statue was coming down.  It was coming down regardless of local protests. A local group wanted to protest the fact that this was happening. This group eventually got a permit although it was initially rejected. So they engaged in a legal protest to exercise their First Amendment rights. The counter protesters, who came in from out to town did not have a permit landed first physical blow.

Freedom of Speech is there for the Offensive Ideas

Are the ideas that the White Nationalists offensive?  Yes.  But it doesn't matter, because that is Freedom of Speech. It is there because of the offensive statements.  See, nobody cares if you say something that makes everybody happy and doesn't offend anybody - you don't need freedom to do that.  The scenario that the left is trying to spin and the media is playing right into it is that America is afraid to go anywhere near anything that would draw the ire of the politically correct thought police. We have a very tenuous grasp on the right of freedom of speech, and there is no doubt in my mind that this right is going to go.

 

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Press Wants Freedom of Speech as Long as It Fits Their Agenda

One of the few rights left to us in this country is the freedom of speech.  If we don't defend speech that we find offensive, someone else will find your speech offensive and move to silence you.  Political correctness, is evolving into the Thought Police via the mainstream media. In particular, President Trump's reaction to the events in Charlottesville is being portrayed as a defense of White Nationalists over Black Lives Matter. Nothing is President Trump's remarks supports this story.  President Trump, in the lobby of Trump Tower, was subjected to an inquisition by the Press, who intended to entrap the President and further their agenda to mischaracterize him and anyone who supports him.

Disrespecting Donald Trump and the Office of the President

I know very few members of the Press respect Donald Trump; this is clear.  But they need to respect the office of the Presidency.  Could you imagine members of the Press treating President Obama the way they are treating President Trump? Can you imagine the cries of racism? Of course, no member of the Press would dare show that type of disrespect to President Obama.

Condemning Violence on Both Sides

President Trump is refusing to denounce only the violence perpetrated  by the White Nationalists without also mentioning that the Black Lives Matter group, who assembled without a permit, also engaged in violence.  The Left is saying that President Trump has not denounced the White Nationalists enough. What the President said was that he was condemning the violence on both sides and that angered the left. They hold that the President should only condemn violence committed by the White Nationalists. That would be hypocritical.

Background on the Event

To give you a little background, the park, formerly named Robert E. Lee Park, was re-named Emancipation Park and the city was going to tear down the statue of Robert E. Lee that had presided over that park. So there was a local protest that the statue was coming down.  It was coming down regardless of local protests. A local group wanted to protest the fact that this was happening. This group eventually got a permit although it was initially rejected. So they engaged in a legal protest to exercise their First Amendment rights. The counter protesters, who came in from out to town did not have a permit landed first physical blow.

Freedom of Speech is there for the Offensive Ideas

Are the ideas that the White Nationalists offensive?  Yes.  But it doesn't matter, because that is Freedom of Speech. It is there because of the offensive statements.  See, nobody cares if you say something that makes everybody happy and doesn't offend anybody - you don't need freedom to do that.  The scenario that the left is trying to spin and the media is playing right into it is that America is afraid to go anywhere near anything that would draw the ire of the politically correct thought police. We have a very tenuous grasp on the right of freedom of speech, and there is no doubt in my mind that this right is going to go.

 

Speculative Asset

Bitcoin is a digital risk asset, not a currency. If you own bitcoin you have an asset, but it is not a safe haven. A safe haven is an asset that is not likely to go down in comparison to another speculative investment.  Bitcoin has been extremely volatile; it happens to be going up, but the price is based on speculation.  Does anybody believe that bitcoin has less downside risk than the stock market?

Not a Currency

Bitcoin is not used as currency.  They trade in bitcoins for dollars or euros or yen to buy things, but very few legal goods and services are priced in bitcoin.  Because the price is highly volatile and backed by nothing, it can not be used as a currency. It is being used as an asset.  The number of top retailers who accept Bitpay is diminishing, not increasing. Merchants will try to make it easy to trade bitcoin for currency which would then buy goods and services.  Most people who own bitcoin are not spending them; they are hoarding them because they think they are going to keep going up.

Just Noise

At the end of the day, the realized gains from speculation in bitcoin are going to be overshadowed by the speculative losses. All the rest of it is just noise.  The realized profits will be concentrated on a small group of people, whereas the realized losses will be dispersed among a larger population.

Reversing the Consequences

Bitcoin will end up achieving the opposite of its original goal, which was to challenge the power of central government, to disrupt money, that is would rein in government and have real commodity money in the same way FedEx upended the Post Office or Uber upended taxis. This is going to give more power to government, because when digital currencies collapse, the central bankers will say, "We told you so! This is what happens when you allow the free market to do what government should do.  When the free market creates money it leads to disaster.  You have to stick with currencies backed by government. "

No Joke

The original currencies that were created by the private sector, and not by government were issued by banks and backed by gold. Today, the private sector could issue digital currency backed by gold just like paper currency backed by gold. What gave the paper currency value was the gold backing. If any bank tried to issue paper currency backed by nothing, it would have been laughed out of existence. It would have been a joke, except now it's not a joke. People actually want digital currency backed by absolutely nothing.

 

 

 

 

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Speculative Asset

Bitcoin is a digital risk asset, not a currency. If you own bitcoin you have an asset, but it is not a safe haven. A safe haven is an asset that is not likely to go down in comparison to another speculative investment.  Bitcoin has been extremely volatile; it happens to be going up, but the price is based on speculation.  Does anybody believe that bitcoin has less downside risk than the stock market?

Not a Currency

Bitcoin is not used as currency.  They trade in bitcoins for dollars or euros or yen to buy things, but very few legal goods and services are priced in bitcoin.  Because the price is highly volatile and backed by nothing, it can not be used as a currency. It is being used as an asset.  The number of top retailers who accept Bitpay is diminishing, not increasing. Merchants will try to make it easy to trade bitcoin for currency which would then buy goods and services.  Most people who own bitcoin are not spending them; they are hoarding them because they think they are going to keep going up.

Just Noise

At the end of the day, the realized gains from speculation in bitcoin are going to be overshadowed by the speculative losses. All the rest of it is just noise.  The realized profits will be concentrated on a small group of people, whereas the realized losses will be dispersed among a larger population.

Reversing the Consequences

Bitcoin will end up achieving the opposite of its original goal, which was to challenge the power of central government, to disrupt money, that is would rein in government and have real commodity money in the same way FedEx upended the Post Office or Uber upended taxis. This is going to give more power to government, because when digital currencies collapse, the central bankers will say, "We told you so! This is what happens when you allow the free market to do what government should do.  When the free market creates money it leads to disaster.  You have to stick with currencies backed by government. "

No Joke

The original currencies that were created by the private sector, and not by government were issued by banks and backed by gold. Today, the private sector could issue digital currency backed by gold just like paper currency backed by gold. What gave the paper currency value was the gold backing. If any bank tried to issue paper currency backed by nothing, it would have been laughed out of existence. It would have been a joke, except now it's not a joke. People actually want digital currency backed by absolutely nothing.

 

 

 

 

Fire and Fury Not Strong Enough

Donald Trump's saber-rattling against North Korea continues. Yesterday the President was asked to clarify his statement about the "fire and fury" and he came out and said that that wasn't strong enough; he was really sugar-coating it. What he really means is something worse - if anything his statement was not strong enough. Again, today Trump issued another threat that N. Korea had better be careful, if they say anything if they will regret it big time, so the level of rhetoric is rising.

A Legend in Trump's Mind

He was talking about the booming economy, the stock market at record highs, employment surging, all these jobs coming back. He is spinning this ridiculous phony story about a recovery that doesn't exist.  Just as I pointed out he took credit for building up our nuclear armament to a level higher than it has ever been - all this is happening, unfortunately, in Donald Trump's mind.

Volatility Up

There was a big down day in the markets; it dropped over 200 points yesterday; there was a small bounce back today  - the Dow was up about 14, not a major recovery, But if you look at the Vix, which is a measure of fear, a measure of volatility, it was near the lows, below 10 mid-week and it spiked all the way up to 16 yesterday, which is the highest it has been since April. It looks like it is above a key moving average on a weekly chart, so that shows a heightened risk in the market.

Dollar No Safe Haven

Interestingly enough, the dollar index closed near the lows of the day, just at around 93 even.  It is down on the week.  In fact, this is the lowest weekly close for the dollar index for the entire year. Now, you would expect the dollar to have some kind of a safe haven bounce with all of the saber-rattling - all of the worries about nuclear war.  Typically, you would get money going into the dollar. I guarantee you, if the circumstances were the same a year ago,  there would have been a big rally in the dollar this week. But not now.

 

 

 

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Fire and Fury Not Strong Enough

Donald Trump's saber-rattling against North Korea continues. Yesterday the President was asked to clarify his statement about the "fire and fury" and he came out and said that that wasn't strong enough; he was really sugar-coating it. What he really means is something worse - if anything his statement was not strong enough. Again, today Trump issued another threat that N. Korea had better be careful, if they say anything if they will regret it big time, so the level of rhetoric is rising.

A Legend in Trump's Mind

He was talking about the booming economy, the stock market at record highs, employment surging, all these jobs coming back. He is spinning this ridiculous phony story about a recovery that doesn't exist.  Just as I pointed out he took credit for building up our nuclear armament to a level higher than it has ever been - all this is happening, unfortunately, in Donald Trump's mind.

Volatility Up

There was a big down day in the markets; it dropped over 200 points yesterday; there was a small bounce back today  - the Dow was up about 14, not a major recovery, But if you look at the Vix, which is a measure of fear, a measure of volatility, it was near the lows, below 10 mid-week and it spiked all the way up to 16 yesterday, which is the highest it has been since April. It looks like it is above a key moving average on a weekly chart, so that shows a heightened risk in the market.

Dollar No Safe Haven

Interestingly enough, the dollar index closed near the lows of the day, just at around 93 even.  It is down on the week.  In fact, this is the lowest weekly close for the dollar index for the entire year. Now, you would expect the dollar to have some kind of a safe haven bounce with all of the saber-rattling - all of the worries about nuclear war.  Typically, you would get money going into the dollar. I guarantee you, if the circumstances were the same a year ago,  there would have been a big rally in the dollar this week. But not now.

 

 

 

Elimination of Deductions for State and Local Tax - "SALT"

Tax reform is the one remaining 2018 Republican campaign issue, and the argument over "SALT", or the elimination of deductions for state and local taxes. In general that would be state income tax or state property tax. In some states that do not have income tax, you are allowed to deduct your sales tax, although that is a more complicated deduction. In the wealthier states on both coasts, tax payers rely on those deductions.

The Mortgage Tax Deduction Restricts the Free Market

No one wants to get rid of the home mortgage deduction, but that is a much better deduction to eliminate, as it does more damage to the economy. The politically popular mortgage interest deduction is aimed at altering behavior, rather than to let the free market work independently. The real beneficiary of the mortgage tax deduction is not the home buyer but the house seller. There are many predominately Democratic states with high taxes but I don't buy argument in favor of eliminating that deduction.

Why Should the Federal Government Subsidize the State Government?

The argument is, why should the Federal government subsidize state government?  If a state wants to have a high income tax, then, its citizens get to deduct that income tax from their Federal taxes and therefore, they don't feel the full burden of the tax, because some of it is absorbed by the Federal government. As a result of this, tax payers in high tax states are more receptive to those high taxes because they get a tax break on their Federal tax returns. If they could not deduct these taxes, there would be a bigger pushback on the state level.

Federal Government Taxing Unearned Income

If we are going to have an income tax, we have to tax the actual income. For example, if you earn $100,000, and let's say you live in a state with a flat 10% income tax, then they pay $10,000 in taxes. Did they earn $100,000 for $90,000? I would say they earned $90,000. Now if the Federal government does not want to give a deduction on the state income tax, they should not tax you on income you never earned.  I don't think that's Constitutional. You can't be taxed on money that didn't come to you. The money paid to the state in taxes is not a voluntary donation. It is taken by force.

No Double Tax

If you go back to the origins of the first Federal income taxes exempted tax paid to the states, it was because the Federal government respected the sovereignty of the states to tax the people first. If you allow the Federal government to ignore state taxes, theoretically they could place an income tax so high that you would have nothing left between the state and Federal tax burden. I would not allow the government to double tax anything, because it is diminishing the power of the state.

Defer Income Tax to Employers

Here's another thing that no one in Congress is addressing: the states can get around this. Let's say they pass  a law that says you can't deduct your state income taxes from your Federal income tax.  In the previous example, the taxpayer pays taxes on $10,000 he never earned. What if the state then repeals the state income tax on wages and salaries and in its place, imposes a payroll tax on employers? So that, instead of an employee getting paid $100,000 and paying $10,000 in taxes, the payroll tax causes the employer to pay a state tax that would then reduce the salary of the employee by that much. That payroll tax would be deductible for the employer as an expense. So all the states would have to do is change the way they tax wages and salaries and the net effect would be no change for the individual worker.  This would deprive the Federal government of all the extra money they think they are going to get by removing the state income tax deduction.

 

 

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Elimination of Deductions for State and Local Tax - "SALT"

Tax reform is the one remaining 2018 Republican campaign issue, and the argument over "SALT", or the elimination of deductions for state and local taxes. In general that would be state income tax or state property tax. In some states that do not have income tax, you are allowed to deduct your sales tax, although that is a more complicated deduction. In the wealthier states on both coasts, tax payers rely on those deductions.

The Mortgage Tax Deduction Restricts the Free Market

No one wants to get rid of the home mortgage deduction, but that is a much better deduction to eliminate, as it does more damage to the economy. The politically popular mortgage interest deduction is aimed at altering behavior, rather than to let the free market work independently. The real beneficiary of the mortgage tax deduction is not the home buyer but the house seller. There are many predominately Democratic states with high taxes but I don't buy argument in favor of eliminating that deduction.

Why Should the Federal Government Subsidize the State Government?

The argument is, why should the Federal government subsidize state government?  If a state wants to have a high income tax, then, its citizens get to deduct that income tax from their Federal taxes and therefore, they don't feel the full burden of the tax, because some of it is absorbed by the Federal government. As a result of this, tax payers in high tax states are more receptive to those high taxes because they get a tax break on their Federal tax returns. If they could not deduct these taxes, there would be a bigger pushback on the state level.

Federal Government Taxing Unearned Income

If we are going to have an income tax, we have to tax the actual income. For example, if you earn $100,000, and let's say you live in a state with a flat 10% income tax, then they pay $10,000 in taxes. Did they earn $100,000 for $90,000? I would say they earned $90,000. Now if the Federal government does not want to give a deduction on the state income tax, they should not tax you on income you never earned.  I don't think that's Constitutional. You can't be taxed on money that didn't come to you. The money paid to the state in taxes is not a voluntary donation. It is taken by force.

No Double Tax

If you go back to the origins of the first Federal income taxes exempted tax paid to the states, it was because the Federal government respected the sovereignty of the states to tax the people first. If you allow the Federal government to ignore state taxes, theoretically they could place an income tax so high that you would have nothing left between the state and Federal tax burden. I would not allow the government to double tax anything, because it is diminishing the power of the state.

Defer Income Tax to Employers

Here's another thing that no one in Congress is addressing: the states can get around this. Let's say they pass  a law that says you can't deduct your state income taxes from your Federal income tax.  In the previous example, the taxpayer pays taxes on $10,000 he never earned. What if the state then repeals the state income tax on wages and salaries and in its place, imposes a payroll tax on employers? So that, instead of an employee getting paid $100,000 and paying $10,000 in taxes, the payroll tax causes the employer to pay a state tax that would then reduce the salary of the employee by that much. That payroll tax would be deductible for the employer as an expense. So all the states would have to do is change the way they tax wages and salaries and the net effect would be no change for the individual worker.  This would deprive the Federal government of all the extra money they think they are going to get by removing the state income tax deduction.